VIX Futures As a Market Timing Indicator

11 Pages Posted: 4 Jun 2018

See all articles by Athanasios Fassas

Athanasios Fassas

Hellenic Open University

Nikolaos L. Hourvouliades

American College of Thessaloniki

Date Written: June 3, 2018

Abstract

This study contributes to the age-old question of whether stock market returns are predictable, by studying the relationship of VIX futures term structure and future S&P500 returns. The objective of this empirical analysis is to verify if the shape of the volatility futures term structure has signaling effects regarding future equity prices movements, as several investors believe. Our findings generally support the hypothesis that the term structure of VIX futures can be employed as a contrarian market timing indicator for the equity market. The empirical analysis of this study has important practical implications for financial market practitioners, as it shows that they can use the VIX futures term structure not only as a proxy of market expectations on forward volatility, but also as a stock market predictive tool.

Keywords: Derivatives, Asset Pricing, Financial Econometrics

JEL Classification: G10, G11

Suggested Citation

Fassas, Athanasios and Hourvouliades, Nikolaos L., VIX Futures As a Market Timing Indicator (June 3, 2018). Available at SSRN: https://ssrn.com/abstract=3189502 or http://dx.doi.org/10.2139/ssrn.3189502

Athanasios Fassas

Hellenic Open University ( email )

Parodos Aristotelous 18
Patra, 26335
Greece

Nikolaos L. Hourvouliades (Contact Author)

American College of Thessaloniki ( email )

Thessaloniki, 55510
Greece

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